State of the Economy and Gold: American’s Credit Card Debt Hits All-Time High

Just charge it. As high inflation squeezes consumers at the checkout line, credit card debt just hit an all-time record high at $986 billion, according to the New York Reserve Bank. Americans are drowning in credit card debt as everyday necessities like housing costs, food and interest rates on anything borrowed remain uncomfortably high. In the meantime, total U.S. household debt surged to a record $16.9 trillion during the fourth quarter, a jump of 2.4% from the prior three-month period.

Why is this happening? Interest rates sit at their highest levels in 15 years, inflation is off it’s 40-year high, but still elevated and wages just aren’t keeping up. Americans have gone through their pandemic savings accounts – boosted by government stimulus payments – and are now turning to their credit cards to make ends meet.

What this means for gold: The rising debt levels on the consumer front reveal cash-strapped spending. Overall consumer spending will suffer in 2023 as high prices and high-interest rates and mass layoffs derail spending plans. Gold tends to increase in value during slowing economic periods and slower consumer spending means slower economic growth. Remember, consumer spending makes up two-thirds of the American GDP.

Stock market earnings reports disappoint

As fourth quarter earnings season nears its end, overall company reports were grim. From Apple, Amazon and Google to Home Depot and Domino’s Pizza – companies reported worse than expected fourth quarter earnings in recent weeks. What’s worse? Looking ahead to full-year 2023 estimates, company results could be the worst in over 20 years according to a new UBS forecast. The firm expects companies to continue to downgrade their earnings forecasts in 2023 amid weak growth and cost pressures on top of recession risk.

UBS economists expect a U.S. recession between the second and fourth quarters of this year, leaving aggregate S&P 500 earnings per share about 11% lower, MarketWatch reported.

What this means for gold: While the stock market posted a minor recovery in early 2023, following 2022’s double digit losses, weaker-than-expected earnings will pull the stock market down again later this year. Look for renewed stock market weakness to support additional gains in gold in the second and third quarters as investors seek diversification and safety from volatility.

Fed nearing the end of its interest rate hikes

The Federal Reserve is widely expected to raise interest rates again at its March meeting. From there all bets are off on future interest rate hikes. With signs that aggressive rate hikes throughout 2022 are taking a toll on consumers and the economy, the Fed may be forced to stand back from additional interest rate increases.

What this means for gold: This is positive for gold and could propel the yellow metal above the $2,000 mark, Wayne Gordon of UBS Global Wealth Management told CNBC earlier this month. He said the Federal Reserve is going to pause after its next interest rate increase and gold will continue to be a “very good hedge” against renewed weakness in the U.S. dollar.

If you have questions about the state of the economy or would like to discuss how you can protect your wealth in the current environment, talk to a Blanchard portfolio manager today. We have been helping clients grow and preserve their wealth through diversification into tangible assets since 1975 and we can help you too

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